Treasuries Catching A Bid After Brutal First Half: Markets Wrap

(Bloomberg) -- Treasuries surged after an ugly first half as weak economic data added to recession fears amid aggressive Federal Reserve policy.

Bond yields tumbled before Monday's US holiday, with the five-year rate at one stage plunging more than a quarter of a percentage point. Traders are paying the most since March to hedge against a deeper slide in 10-year US yields. The S&P 500 wavered, while chipmakers sank on a profit warning from Micron Technology Inc.

A gauge of US manufacturing weakened to a two-year low as new orders contracted. JPMorgan Chase & Co. economists cut their US mid-year growth outlook, saying that while the forecast comes “perilously close” to a recession, they continue to look for an economic expansion. Goldman Sachs Group Inc. strategists noted the risk of a renewed selloff in stocks is high as investors are pricing a mild recession.

“That's what many investors are now worried about -- the growth outlook,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management. “That's the right thing to worry about. We still have to be worried about inflation, but I'm more worried about economic growth slowing.”

Read: Summers Sees Rising Danger US Recession Will Hit Before Year-End

Both stocks and bonds were recently rocked by outflows as investors fear the global economy could contract amid sky-high inflation and hawkish central banks. About $5.8 billion exited global equity funds in the week through June 29, BofA said, citing EPFR Global data. Bonds had redemptions of $17 billion.

A survey conducted by 22V Research showed that 71% of the investors polled believe that second-quarter results will be a negative driver for stocks, wrote founder Dennis DeBusschere. The respondents also estimated 2022 earnings-per-share will come in around $212 -- 7% lower than consensus forecasts of $228.

“I don't think that equity markets have fully priced in a recession,” said Brad Neuman, director of market strategy at Alger. “Normally stocks bottom just before earnings bottom, and earnings haven't declined yet. Estimates remain far too high.”

In corporate news, Micron flagged that demand was cooling for chips used in computers and smartphones. General Motors Co. expects second-quarter sales and profit to take a hit due to supply-chain problems, but the automaker said it can make up for delayed production later this year.

Elsewhere, oil rose as export disruptions in Libya exacerbated global supply concerns. Crop futures sank, with wheat dropping to levels not seen since before the Russia-Ukraine war as concern mounts that an economic slump might hobble demand for farm commodities.

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Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 2:09 p.m. New York time
• The Nasdaq 100 fell 0.4%
• The Dow Jones Industrial Average rose 0.2%
• The MSCI World index fell 0.1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.4%
• The euro fell 0.7% to $1.0413
• The British pound fell 0.9% to $1.2068
• The Japanese yen rose 0.3% to 135.28 per dollar

Bonds

• The yield on 10-year Treasuries declined 13 basis points to 2.88%
• Germany's 10-year yield declined 10 basis points to 1.23%
• Britain's 10-year yield declined 14 basis points to 2.09%

Commodities

• West Texas Intermediate crude rose 2.5% to $108.45 a barrel
• Gold futures were little changed

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